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Sebi changes pricing norms for open offers

BS Markets Bureau in Mumbai

The Securities and Exchange Board of India's amended takeover code has changed the pricing norms for offers. Acquirers will now have to offer shareholders the past 26 weeks' average price or the past two weeks' average price, whichever is higher. At present, the Sebi pricing is based on the 26-week formula.

The amended takeover code has removed the automatic exemption that acquisitions through preferential allotments have enjoyed so far. Such acquisitions will be referred to the standing committee of Sebi's takeover panel. The committee will decide whether such acquisitions have resulted in a change in management control and has triggered the takeover code, Sebi's amended takeover code says.

The amended takeover code was notified on Friday. The finance ministry notified it on September 9.

Effectively this amendment takes the position back to what existed before 1997 when all preferential allotments were being referred to Sebi. Preferential allotments were automatically exempted in 1997.

Significantly too, indirect acquisitions have also come under the open offer. If, for instance, company A acquires a 15 per cent stake in company B which in turn acquires a 15 per cent stake in company C, company A will have to make an open offer for both company B and company C.

The code also says any change in management control has to be ratified through a special resolution of shareholders, and not an ordinary resolution.

A special resolution means 75 per cent of the shareholders will have to ratify it and for this companies will have to resort to a postal ballot.

The takeover code says where two or more persons control the target company, if one of such persons ceases to be in control, such control shall not be deemed change in management.

A share transfer among promoters of different groups of companies will not attract the provisions of the code if it is made at a price less than 25 per cent of that arrived at by the Sebi formula. However, if the price exceeds 25 per cent, it will attract the provisions of the code.

Acquirers have to disclose their holdings at 5 per cent, 10 per cent, and 14 per cent to the company concerned and the stock exchange where the shares are traded. Additional purchase or sale of 2 per cent at every disclosure level has also to be made known to the company and the exchange, along with the aggregate shareholding after such transactions.

In the case of the divestment of a public sector undertaking, the relevant date for the calculation of the average of the weekly or daily high and low of the closing prices of the PSU's shares, as quoted on the stock exchange where its shares are most frequently traded, shall be the one preceding the date when the central government or the state government opens the financial bid.

Where the shares of the target company are infrequently traded, the offer price shall be determined by the acquirer and the merchant banker, taking into account the negotiated price, the highest price paid by the acquirer and other parameters including net worth and the book value of the shares of the target company.

Acquirers who already hold 75 per cent in a company and wish to increase their stake further will have to make a minimum offer of 20 per cent, as against the earlier provision allowing them to make an offer of less than 20 per cent.

There is also relaxation for global acquisitions. If a global acquisition results in an indirect change in the management control of an Indian company, a public announcement shall be made by the acquirer within three months of consummation of such acquisition, or change in control, or restructuring of the parent, or the company holding shares of or control of the target company in India. At present, an announcement has to be made within four days. But the offer price will be the higher of the prices at the two dates.

Any payment to persons other than the target company in respect of a non-compete agreement in excess of 25 per cent of the offer price arrived at will be added to the offer price.

Where the public announcement of offer is due to an acquisition by way of firm allotment in a public issue or preferential allotment, the average price shall be calculated with reference to the 26-week period preceding the date of the board resolution which authorised the firm allotment or preferential allotment.

Investors have been given the freedom to withdraw shares already tendered in an open offer. On the other hand, if competitive bids exist, the code has removed the facility of the first acquirer withdrawing from the offer. The code has done away with the need for acquirers to inform Sebi and the stock exchanges two days prior to a public announcement. A newspaper advertisement would suffice.

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